Employers purchase a variety of insurance products from insurance companies related to employees. Examples of these insurance products include workers compensation insurance, employer-provided term life insurance, and other insurance products. Premiums are calculated by the insurance company based on estimated numbers of employees, employee occupations, salary ranges of employees, locations of employees, and other factors.
The determination of the total premiums is complicated. Reporting to the employer/customer by the insurance company is typically accomplished by a physical printed reported mailed to the employer. The printed report does not provide granular reporting, but provides premium calculations at a higher level for larger employers. For example, premiums for a multi-state employer may be reported by class and state. Additional detail is undesirable from the standpoint of excessive paper and postage cost.
When employees are added to a payroll, the employer does not typically immediately notify the insurance company that provides payroll-based insurance coverage. The insurance company may receive a report of payroll information, including employee data, from a payroll company, and identify employees for whom required information for determination of premium charges is lacking. For example, location of employment and occupation classification data may be lacking. Insurance company personnel typically telephone the employer to obtain this information. The use of personnel to telephone the employer is labor-intensive. Owners and managers needed to complete the information may not be available at the times when insurance company personnel are making calls. For example, owners of construction contractors may be on job sites and not available during normal business hours when insurance company personnel are making calls. Similarly, owners of restaurants may be at the restaurant location primarily in evenings and not available during the daytime.
Small businesses often do not use payroll companies to prepare their payrolls. Such businesses will often employ a bookkeeper to prepare payrolls on a manual basis. As a result, such businesses do not have electronic sources of payroll information that can readily be provided to insurance companies for accurate determination of premiums for payroll-related insurance. The lack of such information may result in inaccuracies in premiums. If the insurance company performs an audit, significant discrepancies that must be remedied by refunds or additional premium payments are often identified.